Zeek ‘winners' made $295.5 million

Published: Wednesday, January 30, 2013 at 9:36 p.m.

Last Modified: Wednesday, January 30, 2013 at 9:36 p.m.

Affiliates who profited from the alleged Ponzi scheme, Zeek Rewards, may have made a combined $295.5 million, according to the case's receiver.

In a quarterly report filed Wednesday in federal court in Charlotte, Zeek receiver Kenneth Bell reiterated he will pursue all money “fraudulently transferred” to net winners.

“Ultimately, the receiver's ‘claw back' litigation is likely to be a combination of individual actions, group actions, defendant class actions, and possibly administrative damages hearings,” Bell said in the filing. “Such proceedings will establish the key findings applicable to most, if not all, recipients of fraudulently transferred funds (findings such as the existence of a Ponzi and/or pyramid scheme).”

The U.S. Securities and Exchange Commission shut down the Lexington-headquartered operation in mid-August, alleging Zeek Rewards and its connected penny auction website, Zeekler.com, was a giant pyramid and Ponzi scheme. The SEC alleged that Zeek's parent company Rex Venture Group and former chief executive officer Paul Burks raised more than $600 million from 1 million users throughout the world, through the sale and offer of unregistered securities.

Burks, a Lexington resident, quickly settled with the SEC by paying a $4 million penalty. He did not admit to or deny the allegations.

Bell has recovered about $300 million so far, mostly from domestic financial institutions. He said hopes to return money to about 840,000 Zeek Rewards affiliates who lost out in the alleged scheme.

About 80,000 of the estimated 2.2 million total Zeek Rewards users made money through the program. However, many people who profited used multiple usernames, and the receiver is still determining the actual number of individuals who withdrew more than they put in.

Bell, who mailed out about 1,200 subpoenas to those “net winners” last year, has said he intends to use “claw back” litigation against any affiliate who refuses to surrender their profits.

In December 2012, Bell filed notices of his receivership in all 93 federal districts, to increase the chances of recovering any funds from profiteers across the nation.

While the pursuit of “claw back” claims against any foreign net winners could raise various service issues and other challenges, Bell said he intends to include those winners as parties to domestic litigation.

It's unclear how many foreign affiliates used Zeek Rewards, or what countries were involved. However, shortly after Zeek originally closed its doors Aug. 16, hundreds of affiliates from places in Brazil, Malaysia, Australia, Canada, Costa Rica, South Africa and other countries contacted The Dispatch looking for more answers.

Before the Zeek shut-down, a public information officer representing Rex Venture said the company employed 23 full-time and temporary staff as well as about 40 subcontractors.

Bell has also identified third-party advisers, vendors and other service providers “that knew or should have known of the inappropriate nature of Rex Venture's activities and yet facilitated those activities for their own gain,” according to the filing.

Bell said he is also considering potential fraud, conversion, negligence and similar other claims against Zeek insiders, including employees, contractors, or other Rex Venture agents, vendors or advisers who played an active role in furthering the alleged scheme, according to the filing.

Along with the U.S. Secret Service (USSS), the receivership team continues to work with financial institutions that may have Zeek funds.

NxPay, one of three e-wallet accounts affiliates used to funnel money in and out of the Zeek Rewards program, has about $4 to $6 million Bell believes is receivership property. The company plans to send that money to the receiver once a pending motion to release third-party assets is resolved, according to the filing.

The receivership team has also located one foreign account in an eastern European country that contains about $12 million. The receivership team, the USSS, the SEC and the U.S. Attorney General's office have all pursued funds in the account, which is linked to a foreign e-wallet that processed payments for Zeek Rewards. However, no recovery has been made, according to the filing.

“These funds represent one of the largest remaining unrealized receivership assets,” Bell said in the filing. “While the location of the funds and the lack of response from the entities which control these funds have made recovery difficult, the receiver team is still actively working to recover these funds.”

Bell said the receivership team also continues to dig through Rex Venture's electronic data, including about 1.6 billion records and 406 material tables in several staged databases. The team is working with Burks, former Zeek employees and other vendors to get through the data.

Bell said he hopes to file a proposed claims process to the courts by the end of the first quarter of this year.

Zeek Rewards' main office was located at 803 West Center St. and the company also owned a warehouse at 4095 Old Salisbury Road. Late last year, Bell said he worked to obtain appraisals of all real property belonging to Zeek, and he will continue to work with appraisers and auctioneers to liquidate the property at auction, according to the filing.

Bell has also made several disbursements, including more than $800,000 in legal services for him and his receivership team.

Bell is expected to file his final liquidation plan on Jan. 31.

Nash Dunn can be reached at 249-3981, ext. 227, or at nash.dunn@the-dispatch.com.

<p>Affiliates who profited from the alleged Ponzi scheme, Zeek Rewards, may have made a combined $295.5 million, according to the case's receiver.</p><p>In a quarterly report filed Wednesday in federal court in Charlotte, Zeek receiver Kenneth Bell reiterated he will pursue all money “fraudulently transferred” to net winners.</p><p>“Ultimately, the receiver's 'claw back' litigation is likely to be a combination of individual actions, group actions, defendant class actions, and possibly administrative damages hearings,” Bell said in the filing. “Such proceedings will establish the key findings applicable to most, if not all, recipients of fraudulently transferred funds (findings such as the existence of a Ponzi and/or pyramid scheme).”</p><p>The U.S. Securities and Exchange Commission shut down the Lexington-headquartered operation in mid-August, alleging Zeek Rewards and its connected penny auction website, Zeekler.com, was a giant pyramid and Ponzi scheme. The SEC alleged that Zeek's parent company Rex Venture Group and former chief executive officer Paul Burks raised more than $600 million from 1 million users throughout the world, through the sale and offer of unregistered securities.</p><p>Burks, a Lexington resident, quickly settled with the SEC by paying a $4 million penalty. He did not admit to or deny the allegations.</p><p>Bell has recovered about $300 million so far, mostly from domestic financial institutions. He said hopes to return money to about 840,000 Zeek Rewards affiliates who lost out in the alleged scheme.</p><p>About 80,000 of the estimated 2.2 million total Zeek Rewards users made money through the program. However, many people who profited used multiple usernames, and the receiver is still determining the actual number of individuals who withdrew more than they put in.</p><p>Bell, who mailed out about 1,200 subpoenas to those “net winners” last year, has said he intends to use “claw back” litigation against any affiliate who refuses to surrender their profits.</p><p>In December 2012, Bell filed notices of his receivership in all 93 federal districts, to increase the chances of recovering any funds from profiteers across the nation.</p><p>While the pursuit of “claw back” claims against any foreign net winners could raise various service issues and other challenges, Bell said he intends to include those winners as parties to domestic litigation.</p><p>It's unclear how many foreign affiliates used Zeek Rewards, or what countries were involved. However, shortly after Zeek originally closed its doors Aug. 16, hundreds of affiliates from places in Brazil, Malaysia, Australia, Canada, Costa Rica, South Africa and other countries contacted The Dispatch looking for more answers.</p><p>Before the Zeek shut-down, a public information officer representing Rex Venture said the company employed 23 full-time and temporary staff as well as about 40 subcontractors. </p><p>Bell has also identified third-party advisers, vendors and other service providers “that knew or should have known of the inappropriate nature of Rex Venture's activities and yet facilitated those activities for their own gain,” according to the filing.</p><p>Bell said he is also considering potential fraud, conversion, negligence and similar other claims against Zeek insiders, including employees, contractors, or other Rex Venture agents, vendors or advisers who played an active role in furthering the alleged scheme, according to the filing.</p><p>Along with the U.S. Secret Service (USSS), the receivership team continues to work with financial institutions that may have Zeek funds.</p><p>NxPay, one of three e-wallet accounts affiliates used to funnel money in and out of the Zeek Rewards program, has about $4 to $6 million Bell believes is receivership property. The company plans to send that money to the receiver once a pending motion to release third-party assets is resolved, according to the filing.</p><p>The receivership team has also located one foreign account in an eastern European country that contains about $12 million. The receivership team, the USSS, the SEC and the U.S. Attorney General's office have all pursued funds in the account, which is linked to a foreign e-wallet that processed payments for Zeek Rewards. However, no recovery has been made, according to the filing.</p><p>“These funds represent one of the largest remaining unrealized receivership assets,” Bell said in the filing. “While the location of the funds and the lack of response from the entities which control these funds have made recovery difficult, the receiver team is still actively working to recover these funds.”</p><p>Bell said the receivership team also continues to dig through Rex Venture's electronic data, including about 1.6 billion records and 406 material tables in several staged databases. The team is working with Burks, former Zeek employees and other vendors to get through the data.</p><p>Bell said he hopes to file a proposed claims process to the courts by the end of the first quarter of this year. </p><p>Zeek Rewards' main office was located at 803 West Center St. and the company also owned a warehouse at 4095 Old Salisbury Road. Late last year, Bell said he worked to obtain appraisals of all real property belonging to Zeek, and he will continue to work with appraisers and auctioneers to liquidate the property at auction, according to the filing.</p><p>Bell has also made several disbursements, including more than $800,000 in legal services for him and his receivership team.</p><p>Bell is expected to file his final liquidation plan on Jan. 31.</p><p>Nash Dunn can be reached at 249-3981, ext. 227, or at nash.dunn@the-dispatch.com.</p>